Excel - question on dev model when fees are reimbursed to GP & tenants pay some expenses
Hey guys I'm putting together a development model for a project on the West Coast - this is for a formal interview due in a week. Some assumptions have been given like fees reimbursed to GP and tenants pay for xyz exp (a type of net lease). I'm confused where these would be exactly on the line items for cashflows - I have (acq & other fees given) all before NOI and to reimburse them I show them as a negative then have another line where they're all added. I also have similar setup for the Tenants.
Ex:
Fee ($10,000)
Property Expense ($5,000)
Reimbursement $10,000
Tenants Pay $5,000
NOI $0
This my Unlevered and Levered IRR are very high (30%+ unlevered and levered). Let me know what you think.
Is the fee a development or construction management fee to the GP? If so it would be a part of your construction cost. If it's a property management fee for after the project is complete, then it's a part of your operating expenses and can be lumped in with the rest of them.
Tenant recoveries (what the tenants pay in terms of expenses) may or may not even need to be included - if the property (i.e. tenants) reimburses 100% of the GP fees and OPEX you really don't need to show them and can just have base rent less vacancy and structural reserves. However, for the sake of being thorough I'd just show a line for CAM & Tax Recoveries and have it equal to whatever % of the total operating expenses the tenant pays.
Great comment thanks, seems so obvious I think I have it structured similar but will confirm. It's development, acquisition, mangement, and leasing fee to GP.
That's REALLY strange that they are blending all fees together like that... Typically your acquisition fee would be blended into the land cost from an investor's perspective, then development fee (and leasing fee if GP is vertically integrated) would be part of construction proforma, and property management fee would be OPEX.
Frankly, if they're blending them all into a single fee I'd think you have to include it as part of OPEX, but it's stupid and in practical terms makes no sense.
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